Business context and reporting period
The supplied filing is Great American Group, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013—not a filing identified as BRC Group Holdings, Inc. The company provides asset disposition, auction and liquidation, valuation and appraisal, and real estate consulting services, and operates ten UK shoe stores through Shoon. Unless otherwise noted, financial amounts below are in thousands of dollars.
Financial performance and position
- Second quarter: Revenue was $15,239, down 22.5% from $19,651. Operating loss was $1,935, compared with operating income of $764 a year earlier. Net loss attributable to Great American Group was $1,531, or $0.05 per share, versus net income of $619, or $0.02 per share.
- First half: Revenue was $36,193, down 7.1% from $38,971. Operating income fell to $410 from $3,164; the company reported a consolidated net loss of $660 and a net loss attributable to the company of $242, or $0.01 per share. The comparable 2012 figures were net income of $2,531 and company-attributable income of $1,686.
- Margins and segments: Consolidated operating margin was negative 12.7% in Q2 2013 versus positive 3.9% in Q2 2012, and 1.1% for the first half versus 8.1%. Q2 Auction and Liquidation segment income was a loss of $810 (prior-year income $1,291); Valuation and Appraisal income rose to $2,297 from $2,061; UK Retail Stores recorded a $56 loss versus $210 income. First-half Shoon operating loss was $889, compared with $210 operating income in the partial-year 2012 comparison.
- Cash flow: First-half operating cash flow was $66, down from $13,939. Investing activities provided $6,211, mainly reflecting a $6,698 reduction in restricted cash; financing activities used $3,974. Cash and cash equivalents increased by $1,876 to $20,597; restricted cash was $1,225.
- Liquidity and debt: At June 30, current assets were $50,685 and current liabilities $22,363. Long-term debt was $52,207, including a $1,724 current portion; notes payable were $7,697 and the accounts-receivable credit line balance was $1,516. The company had no cash borrowings under its asset-based facility at quarter-end, with $905 of letters of credit outstanding. The filing reports total liabilities of $72,846 and a stockholders’ deficit of $5,108.
Material changes versus the prior comparable period
- Q2 revenue fell principally because Auction and Liquidation revenue declined $5.9 million, including the absence of $3.5 million of prior-year financing revenue and lower wholesale and industrial goods sales. Valuation and Appraisal revenue increased $1.4 million.
- First-half Auction and Liquidation revenue declined $6.4 million, partly offset by higher appraisal revenue and a full six months of Shoon operations. The company said Fashion Bug liquidation work contributed $8.1 million of first-half revenue, or 22.3% of total revenue; the liquidation concluded with proceeds exceeding the minimum guarantee.
- Q2 2012 included a $1,366 bargain-purchase gain from the Shoon acquisition; there was no corresponding gain in 2013. Higher headcount and UK expansion increased appraisal costs, and severance related to the former CFO’s April 2013 departure contributed to increased corporate expenses.
Outlook, risks and unusual items
- Management stated that cash, expected operating cash flow, and available asset-based credit were expected to cover working capital and capital expenditures for at least 12 months. No specific revenue or earnings guidance was provided.
- On July 15, 2013, after quarter-end, the company renewed its asset-based credit agreement, maintaining a maximum facility of $100 million and extending maturity to July 15, 2018. Borrowings and letters of credit remain subject to lender discretion and facility terms; the company anticipated a separate UK credit agreement.
- On July 31, 2013, the company paid $1.7 million of principal to Phantom Equityholders. The notes payable to former members and Phantom Equityholders totaled $52.2 million at June 30; the filing describes cash-flow-based prepayments on certain notes subject to a minimum adjusted cash balance.
- Key disclosed risks include volatile engagement-driven revenue, dependence on major contracts and financial-institution clients, losses on guaranteed or purchased liquidation assets, substantial indebtedness, credit-facility availability and covenant compliance, and the performance and financing exposure of Shoon. A related-party note receivable of $377 was outstanding; the company reported no interest income on it in the first half and had extended its maturity to December 31, 2013.
- Management said ordinary-course legal claims were not expected to materially affect financial position or results. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Confirm the issuer identity: the request names BRC Group Holdings, Inc., while this filing names Great American Group, Inc.
- Review the quality and recurrence of revenue, particularly the Fashion Bug contribution and the sharp year-over-year drop in operating cash flow.
- Verify debt maturities, required note payments, the July 2013 payment, and the terms and actual availability of the renewed credit facility and anticipated UK facility.
- Assess Shoon’s continuing operating losses, inventory and loan collateral, and the recoverability and maturity of the related-party receivable.
- Check subsequent filings for operating results, liquidity, covenant compliance, and developments in material contracts or contingencies.